US markets recovered somewhat overnight after a compromise to extend the debt ceiling to fund operations through to early December. This gives the Democrats some time to come to a longer-term solution to fund the government and bides 3.5 trillion spending agenda. The major US indices did not hold the high for the day, giving back almost half of the day’s gains.
The mood in the market will likely stay a little bullish with the US debt issues pushed out. A lot is going on that will affect the markets in the next month or so. Tonight, investors will be eyeing off US job numbers. The global tax agreement is getting close to being finalised which will affect some companies more than others. China real estate issues are still simmering in the background with has many wondering what that means for commodities demand. US reporting kicks off next week which is likely to be positive.
The next FED announcement isn’t until early November, but investors will continue to speculate in interest rates movements around inflation data.
We are also coming into the period where companies’ payout their August/September dividends which means many Aussie investors will see cash hit their investing accounts this month. Often this cash is put back into the market which can also help with some upward momentum.
Daily virus numbers worldwide are still declining. Locally NSW numbers are trending down, but Vic numbers are still jumping. Vaccination numbers continue to climb as we are set to reach national targets in the next few months. Nationwide we are now at above 80% first dose which is a great milestone. NSW is still climbing at 89.41% first does and has now hit the first target of 70% second does which means restriction will be lifted early next week. Vic is at 84.13% first dose and 55.55% second dose. At this stage, Vic is still playing some catchup but is likely to hit 70% second dose by the end of this month. There is a lot of positive talk around ending lockdowns and reopening the economy.
Australian Outlook
The XJO is expected to open higher this morning following strong gains in the U.S overnight. U.S futures have also edged into the green and if they remain so will help us hold our gains.
With the debt ceiling issue being kicked out to December, markets have had a sigh of relief. Our open this morning will have us test 7,300, which has roughly been the top of the consolidation range over the past week or so. If we can get past it, the broader downtrend line comes in at roughly 7,400 for now. Note, the U.S reached theirs overnight and sold off some of the gains into the close, indicating they rebounded off it.
Markets in the short term may look to economic data from the U.S for further direction now that the debt ceiling issue has been pushed out. It seems that positive economic data should elevate markets as investors want to know that markets can stand up without the crutches of expansionary monetary and fiscal policy. Tonight the U.S will report job data.
US Markets
US shares closed higher overnight as the optimism around an extension to the US debt ceiling continued to enthuse investors. Each of the SP500, DOW JONES, and NASDAQ indices closed around a percent higher, with the tech-heavy NASDAQ the strongest performer. The indices did reverse from their intra-day highs however, to close back around opening levels. This rally occurred despite a continued rise in US government bond yields, with a shift higher in the US government bond yield curve overnight. We also saw fewer than expected US jobless claims overnight, which is a positive sign for the US economy. Ten of the eleven sector groups of the SP500 closed higher overnight, with only Utilities finishing lower on average. Discretionary stocks fared the best, followed by Materials and Healthcare stocks.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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